Non-bank lenders vs Traditional bank loans

How do you choose a small business loan? The first thing to consider is which lender to apply with. Here’s a brief guide to the advantages and disadvantages of traditional lenders as well as Non-Bank lenders.

First , small-scale business finance is typically a great option for business owners:

• With a clear roadmap for expansion or a clearly defined time-frame
• Who is able make the payments
• Know the terms and conditions with the loan – your broker or adviser is here to assist you with any concerns.

If you’re willing to invest in inventory, brand new technology or equipment, extra staff, training and renovations or even new premises which could help take your small company to the next level You may want to weigh up the advantages and disadvantages of taking out a traditional bank loan versus working with a non-bank lender.

Bank or online lender?

Lending from banks

The brand reputation of a long-standing bank can be seen as solid or safe in the sense of security – in New Zealand banks are registered with the Reserve Bank of New Zealand and fall under the same rules.

The application for bank loans could be long and complex, and may require a large amount of paperwork that some small business owners are limited by time constraints to meet. The process can be speedier in the event that the bank has digital accessibility to financial data - although banks aren’t widely recognized for their data-savvy approach to small business loaning, the situation is getting better.

Similar to all kinds of loans, the possibility of lower interest rates will need to be considered along with characteristics of loan products to decide on the most suitable type of loan. As for the lender traditional bank loans are likely to have strict criteria and lengthy application procedures, and lack flexibility.

With cash flow being so vital to the survival of a lot of small enterprises, the gap between a loan today that can fund inventory to sell tomorrow, and the loan that is granted next month , when the seasonal demand is gone, could be the difference between making or breaking.

Non-bank or online business loans

A credit score that is strong and solid security are usually necessary for obtaining an bank loan, Non-Bank lenders may be more flexible with their approach. They can also tend to have greater flexibility when it comes to structuring loans.

Non-Bank lenders are often more technologically advanced than banks, which means applications can sometimes be processed and approved in a short time, with funds made available within the next dayfollowing approval.

You’ll usually still need to disclose the purpose of the loan is for the business’s name, type of business and past history, as well as potentially providing security for loans that are larger, but because a comprehensive business plan as well as a lengthy application aren’t always part of the deal, things may move faster.

Check out these relationships: red flags and payments

If you have a good relationship with a bank’s manager or another lender, you can talk to them about the process of applying for loans and obtaining approval. In other cases, your broker will guide you through the different requirements of lenders.

Many newer and non-bank lenders are exclusively online, certain lenders can provide a dedicated expert to guide you through the process of applying and truly get to know the needs of your business.

If you’re thinking about Non-Bank lenders take a look at independent reviews. If an offer seems too appealing to be true, such as getting pre-approval prior to you’ve even applied, or the lender is very aggressive, consider speaking to advisors or brokers and looking into the matter prior to signing the contract.

Whether you’re borrowing from a bank or a Non-Bank lender, you may want to know the conditions and be realistic about whether you’ll be able meet the repayments. A key consideration may be setting ground rules for yourself when deciding whether you should use business loans to help your business thrive by coping with seasonal ups and downs and fluctuations in cash flow, or to take advantage of opportunities to purchase stock in large quantities, or to fund day-today operations and costs.